Tax | Liability of Managers of Brazilian Companies in Tax Planning Cases – The Case of the Sale of “Standing Trees”

Managers of companies and funds must be very careful with the decisions made in tax planning to avoid liability with their private assets in Brazil.  

Recently, the Minas Gerais State’s Court of Justice upheld the conviction of a company and its directors, as it understood that the directors made a deliberate decision not to collect a tax, even though there was specific guidance from the Tax Authorities that the tax was owed by the company.  

The background in this case is interesting. ICMS (IVA like tax) was levied on the sale of “standing trees”. That is, a rural property with a forest on top was sold. In Brazilian law, trees are part of real estate and are considered as such. 

However, the Tax Authorities charged ICMS, which is a tax on the sale of goods (movable assets), as it understood that the reason for the sale would be the future cutting of trees for their sale. The Court understood that trees that are to be cut lose their status as immovable property and become movable, and must be subject to ICMS. 

This case is unusual, but it demonstrates how the strategy in tax planning should be viewed. The directors chose to make an official consultation with the Tax Authorities, and, given the affirmative answer for taxation, they decided not to pay the tax.  

Because of this deliberate decision, they are being held jointly and severally liable. In tax planning on new or dubious issues, other strategies can be taken, such as prior discussion of the matter in court, or administrative decision-making without express disobedience to a response from the tax authorities.  Each case is different, which is why tax planning must be analyzed carefully, and always seeking to protect the assets of the company and its directors, respecting the law.


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